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Title:Optimal Incentive Contracts under Moral Hazard When the Agent is Free to Leave PDF Logo
Authors:Roider, Andreas
Englmaier, Florian
Mühlheusser, Gerd
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Asymmetric Information and Incentives A8-V1
Abstract:We investigate a moral hazard model with a one-sided commitment problem. That is, after effort provision, the agent is free to either stay with the principal or to leave and pursue his (ex-post) outside option, the value of which is increasing in effort. Depending on parameters, optimal contracts have interesting properties, such as first-best effort incentives, nonresponsiveness to underlying parameters, or inefficient separation. Moreover, the agent might suffer from a ceteris paribus improvement of his outside option. Potential applications of this framework include employment relationships and venture capital financing.
Subjects:moral hazard
limited commitment
ex-post outside option
limited liability
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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